Bankruptcy can buy you a few more months or even several years. Then you can sell your home when you’re financially and personally ready.
Selling under Pressure
If you are being pushed to sell your home quickly because of serious financial pressures, please know that there’s a good chance that there’s a way to get rid of that pressure and sell the home on your own schedule.
Selling on somebody else’s schedule is no good. Whether it’s because of an upcoming foreclosure or the threat of one, or because of overall creditor problems, it’s understandable that you want to try to cut your losses by getting out from under your biggest debt. But selling hurriedly means that your home is probably not getting the market exposure to sell for its highest price. Avoid selling your home under creditor pressure. There are lots of important financial and personal considerations that should govern your decision, not creditor demands.
Waiting to Sell for Financial Reasons
If you weren’t feeling forced to sell now, but had the opportunity to sell when you were ready, you could benefit financially in a bunch of ways.
First, as just mentioned you could get full value out of the home instead of selling it at a desperation price. It could go on the market priced right, gauged to sell within a reasonable amount of time but to a buyer more willing to pay on the high end of the home’s value.
Second, if your home is appreciating in value relatively quickly—as homes are in many parts of the country right now—holding off selling for a year or two may be highly worthwhile. You may be able to build some equity if you don’t have any now. Or if you do have some equity now, building some more could give you the ability to pay off some special creditors that would not be written off in bankruptcy, like recent income taxes or unpaid child or spousal support.
Third, bankruptcy itself comes with tools that can make selling during or after your bankruptcy case financially much better for you. This is especially true with Chapter 13 “adjustment of debts.” For example, see our most recent blog post of a couple days ago about “stripping” second or third mortgages off your home’s title, which may gain you tens of thousands of dollars.
Waiting to Sell for Personal Reasons
Here are some to the personal reasons that in normal circumstances would likely be the main reason you’d be selling your home. Consider whether it would make more sense for you to hold off on selling your home until one of these reasons is primarily motivating you to sell at that time.
- You’re downsizing because your kids have left the family home.
- You’re ready to pursue a job opportunity somewhere else, perhaps after finishing some current re-training or schooling or after getting a certain amount of experience at your present job.
- You’re getting married or moving in with a significant other.
- You’re getting divorced and are both leaving the marital home.
- You or your spouse have reached retirement and want to downsize.
Buying Time under Chapter 7
Chapter 7 “straight bankruptcy” buys you time in two ways.
First, if your home is facing foreclosure, filing a Chapter 7 case with the right timing would stop an immediately pending foreclosure sale. At some point that foreclosure would likely be rescheduled, anywhere from weeks or month later, but the time it buys may be crucial.
Most Chapter 7 cases last only 3 or 4 months, and the “automatic stay” protection from foreclosure lasts only that long. In fact a mortgage lender may ask the bankruptcy court for permission to proceed with the foreclosure before the case is over. On the other hand, once a Chapter 7 filing stops a foreclosure sometimes the lender takes no further action to foreclose for quite a few months.
So if you have a home sale in process with a looming foreclosure is jeopardizing it, filing a Chapter 7 case may buy you enough time to complete that sale
Second, if you can’t afford your home then writing off all or most of your other debts under a Chapter 7 case may make your home more affordable, at least for long enough until you sell the home. So, if you’ve been able to keep current on your mortgage payments (likely by not paying other debts), getting rid of those other debts would more likely allow you to stay current until you were ready to sell. And if instead you were behind on your mortgage, you may be able to enter into a “forbearance” agreement getting the lender to “forbear” from starting a foreclosure as long as you kept up on an agreed catch-up payment plan. You may be all the more motivated to make those payments since doing so would likely create more equity for you on an accelerated basis for when you do sell the home later.
Buying Time under Chapter 13
A Chapter 13 case can usually buy you much more time than a Chapter 7 case. Depending on your circumstances your home sale could occur many months or even a few years after the time your case is filed.
The “automatic stay” protection from foreclosure (and from most other creditor collection actions) seldom lasts more that 3 or 4 months under Chapter 7 BUT lasts 3 to 5 YEARS in a Chapter 13 case. You often have to do a lot to maintain protection that long, and preventing the lender from getting court permission to foreclose on the home. Usually you have to continue or re-start making the monthly mortgage payments, plus usually something paid towards any arrearage. You have to maintain liability insurance on the home, and usually keep up on property taxes and any ongoing homeowner association dues.
If this sounds difficult realize that Chapter 13 generally allows you to pay your mortgage and other home-related debts ahead of most if not all of your other creditors. Most of your creditors could well receive little or nothing so that you could afford your home-related debt payments.
Also, if your home has equity—especially a good cushion of equity—then you may be able to put off catching up on any mortgage arrearage (and possibly other debts secured by the home) until the time when those are paid in full out of the proceeds of that future home sale.
How much time either a Chapter 7 or Chapter 13 case would give you before you would have to sell your home depends on many circumstances. We’ve touched on a few here but please see a local bankruptcy attorney for a thorough analysis of your situation.